Luxury, lifestyle, soft brands and independents are redefining the hotel experience – and your hotel program
Don’t discount the impact of Millennial momentum. It’s changing the face of business travel, especially when it comes to their choice of where to lay their yet-to-gray heads for the night.
“I really think we’re facing a very special moment in the development of the [hotel] industry,” asserts Lukasz Dabrowski, senior vice president, global for hotel content provider HRS. Of the roughly worldwide 300,000 properties in the HRS portfolio, two-thirds are independents.
The generation shift is propelling younger business travelers to book hotel properties much the same way they arrange for their private travel, Dabrowski says. “The balance is definitely shifting from the same room, with the same amenities wherever [they] go worldwide towards the new, the local, the unique.”
Advito’s senior director and hotel practice area leader Marwan Batrouni echoes that assessment. “Younger travelers want the best of both worlds,” he says. They crave frequent stayer points, the better to spend them on their personal leisure longings. At the same time they’re also in search of “a non-traditional or new experience while on the road.” Keeping Millennials smiling, more engaged in the corporate travel program, can pay off by “driving up compliance with preferred suppliers.” And booking in-program has duty of care dimensions too.
Compliance is especially critical in the current environment, one in which hotel booking leakage for corporate programs large and small averages 50 percent. Half the travelers out there simply don’t book within program parameters. The corollary to that is travel managers may not know where they are should havoc break out.
The answer? Open up alluring – yet approved – options.
“The marketing is evolving and travelers want options,” agrees Rodolfo Elizando, vice president and head of global business consulting at American Express Global Business Travel. Business travelers who are “accustomed to alternative lodgings from their leisure travel want these options for corporate.”
Those options include true independents and increasingly the so-called ‘soft brands’ – independent properties that find shelter and sustenance under the corporate umbrellas of big chain hoteliers.Soft Serve
The chains are catching on fast to the trend. After all, the Millennial market matters more every day. Consider some of the major players in the game: Hilton Worldwide’s Curio Collection, Lowes Hotels & Resorts’ OE Collection, Marriott International’s Autograph Collection, Starwood Hotels & Resorts’ Tribute Portfolio, Choice Hotels International’s Ascend Hotels Collection, Best Western International’s BW Premier Collection and Vantage Hospitality’s Lexington Legacy Hotels.
The growing trend presents significant opportunities for corporate travel buyers in the indy space in general, as well as among soft brands, according to Carlson Wagonlit Travel. By 2020 the march of the Millennials is expected to account for a full half of all business travelers says CWT Hotel Solutions group director Eric Jongeling. “We have seen, and expect to continue to see, a larger appetite for these unique properties.” By contrast, the older guard – “travelers with longer tenure,” as the CWT executive calls them – are looking for “the tried-and-true traditional hotel.”
For example, Marriott International’s luxury and lifestyle portfolio includes such trusty names as Ritz-Carlton, JW Marriott and Renaissance Hotels. However, also populating that list are up-and-coming brands such as EDITION, AC Hotels and hip newcomer Moxy Hotels. But it is the Autograph Collection, Marriott’s portfolio of one-of-a-kind independent hotels, that is the hotel giant’s fastest growing brand.
Together, luxury and lifestyle brands account for nearly 25 percent of Marriott’s system-wide pipeline, and that’s prior to any post-merger contribution of Starwood’s flags in the same category.
For Hilton Worldwide, executive Dianna Vaughan knows what it’s like to operate with one foot in each arena – as senior vice president and global head both of soft brand Curio and more traditional DoubleTree.
Curio has 85 properties, encompassing some 17,000 rooms either open or in various stages of development. They range across a couple of dozen countries – with hotels as diverse as The Hotel Roanoke & Conference Center, nestled in he Blue Ridge Mountains of Virginia, to the grand dame Reichshof Hamburg. Another of the additions to the collection is Juniper Hotel Cupertino, which sits a scant mile from the Apple campus. It’s the very essence of a Millennial enclave.
What renders each property distinct, says Vaughan, is that each is an individual, integral, sometimes legendary, part “of the city that they call home.”
In a Hilton brand such as Hampton, “standards are more prescriptive,” she says. “If you go to a Hampton and look at that front desk, you know you’re staying at a Hampton.” The likeness is more than skin-deep: guest rooms must be “X-square feet,” the artwork behind the front desk fitting a familiar pattern. Soft brands such as Curio afford hoteliers the “opportunity to be a little bit more flexible.”Dots on the Map
Points are important. They can help drive property preference. “The feedback we get is that travelers want their HHonors points,” says Vaughan. But there’s got to be more than points to convince corporate travel buyers to book an independent or collection property. “Curio is backed by Hilton. It provides that quiet assurance,” that the reservation won’t get lost or the room double-booked. Then there’s the matter of researching properties. Respected hoteliers, such as Hilton, make the job of scoping out the independents that inhabit their “collections” easier.
Even as big US chains cast an ever-widening net, both through their own mainline properties and via collection brands, they can’t be everywhere.
“I think North American travel buyers are realizing – they thought they knew what hotel sourcing and procurement were all about,” contends Suzanne Neufang, HRS’ vice president of the Americas. “They thought it was 100 percent chains, wherever you go.” However, she says, “outside the US the hotel makeup is actually quite different.”
She offers some compelling statistics to drive home the point. According to research from STR, the breakdown among US hotels is 60 percent chain vs. 40 percent independent. “Most corporate travel buyers think it’s 90/10 or 95/5,” Neufang says. But it’s outside the USA that the indies flat out dominate. “It’s like 85 percent independent/15 percent chain,” she explains, and perhaps as high as 90/10.
The upshot: what corporate travel managers have “learned in the centralization of their programs,” asserts Neufang, “is they really don’t know how to manage a hotel program outside the US at all.”
Some context that puts her numbers into perspective. According to a 2015 GBTA and HRS survey, lodging’s share of total global corporate travel spend amounted to 27 percent or $320 billion. The study found that for a full one-fifth of all corporate programs, lodging accounted for up to 50 percent of total travel costs.
Another salient conclusion from HRS, Euromonitor 2015 and Smith Travel Research 2015: “Fragmentation of the hotel industry makes it difficult for corporations to manage a global portfolio.”
There’s a statistical disconnect between the share of hotel types in corporate programs and the share of hotel types overall. Worldwide chain properties make up 73 percent of the hotels housed actually in corporate programs. In comparison, independents comprise just 27 percent, getting short shrift from many corporations.
More data: Among European hotels, 88 percent are independents, 12 percent chain. In South America, 91 percent of the lodging inventory is independent, 9 percent is chain. And in burgeoning Asia/Pacific, 95 percent of hotels are indies, a mere 5 percent are chain properties. “We have some areas in the world where independent content is absolutely dominant,” says HRS’ Dabrowski.
Perhaps it’s travel patterns that give the appearance chains are more widely dispersed than they are. It could be that the presence of flagship chain hotels in the planet’s banking capitals – London, Paris, Frankfurt, Hong Kong and Shanghai – impart the illusion that they’re just as prevalent outside these urban centers in so-called secondary cities.
“It’s not that the chains are not represented” in the smaller cities, Neufang says. “It’s just the proportion of how many, on average, chain properties you have in the region vs. the independent supply.”
Lest you get the wrong impression, Neufang clarifies: “HRS isn’t anti-chain. We’re just pro-independents.” Remember, a third of the company’s portfolio is comprised of chain properties
A major impediment to folding independents into managed corporate travel programs has been getting these indies in far away places with strange-sounding names to respond expeditiously to requests for proposals.
HRS has honed in on generating RFPs from independents, freeing up corporate travel managers from the oft-time daunting mechanics of the process. The response rate from hotels to HRS when it puts in RFPs on behalf of its corporate client is 92 percent to 93 percent. This sort of forceful feedback generates much more robust sourcing, a bigger pool of properties from which corporate travel managers can choose.Options Can Beget Savings, But …
While additional options can generate savings it’s not automatic. “In most cases,” says CWT’s Jongeling, “We don’t see significant savings opportunities from lifestyle or boutique properties within the same class of hotel.”
Growing the pie per se is no guarantee that you’ll reap big savings, but it’s the sine qua non of rate negotiation. Savings opportunities “vary by market and overall supply and demand,” says Advito’s Marwan Batrouni. “Average rate increases in most regions, especially primary markets, has given travel managers reason to look for new lodging options.”
Advito’s corporate clients can benefit from fitting new options into their existing programs. “It can be worthwhile comparing boutique, independent and soft brands against properties used in the preferred program,” Batrouni says.
Remember, that carefully-cultivated relationship with the big chain might position you to leverage your company’s corporate spend across the chain’s portfolio of brands. “Existing relationships with big hotel chains may open the door to deals with soft brands,” says American Express Global Business Travel’s Elizondo. He says travel managers may want to consider alternate payment arrangements, contingency fee models or volume guarantees for example.Taking the Long View
How does this all fit into the bigger picture? The newfound focus on independents and soft brands “really completes the cycle,” contends Dabrowski. “Look at what’s happened to those independent properties. They’re really being pushed and squeezed by the consolidation process in the industry.” As a consequence you have big chains with big brands, but that are also developing their own indy entrants. That puts pressure on the remaining true independents.
How this cycle of consolidation and renewal plays out remains to be seen. Currently, the market is assimilating this new array of one-of-a-kind, lifestyle hotels. And there are manifest reasons they’re ascendant just now, not least among them the Millennial shift. But the results of that shift, from a purely business travel as well as larger societal perspective, aren’t in yet.
The embrace of the new breed of independents may present “challenges in dealing with corporate travelers and their organizations,” according to American Express’ Elizondo. Remember, many of the indies “were designed for leisure travelers. It’s possible that they can evolve to meet corporate needs, but it will require a deep understanding that there’s no one-size-fits-all solution.”
Experts do agree on this much: For now, indies – be they true independents or soft brands – are opening up a wealth of new business accommodations for a new generation of business traveler. As Eric Jongeling puts it: “With the right mix of program hotels, a travel manager can count on improving program compliance and traveler satisfaction.”